Construction sector expands in May

Thursday, 02 June 2011 10:54

The Markit/CIPS construction industry PMI index rose slightly more than experts expected in May providing some welcome news for the UK economy after negative manufacturing and mortgage data earlier in the week.

The PMI index rose to 54.0 in May from 53.3 in April. Most analysts had expected the index to rise slightly to 53.6. Any index figure of over 50 shows there is growth in the sector. Employment in the sector rose for the first time since June 2010 and overall firms were at their most optimistic about the prospects for the construction industry in a year.

Howard Archer, Chief UK & European Economist for HIS Global Insight said: “The May construction purchasing managers' survey shows decent but unspectacular activity. It reinforces belief that the sector is doing appreciably better than the 4.0% quarter-on-quarter contraction in output reported in the first quarter and will grow in the second quarter.”

The survey contained further good news in that the sectors order book had grown since April with many companies reporting a rise in orders for new business. The construction sector in the UK was growing in the last six months of 2010 but had its biggest quarterly fall between January and March 2011 for two years so these figures that show an upturn are very welcome.

Public spending cuts have impacted the construction sector as government spending on infrastructure like new hospitals and schools has slowed. Coupled with the slow-down in the housing market, these influences have led to many firms going out of business in the early part of 2011, according to a report out this week from accountants Wilkins Kennedy. Their report said close to 1,000 firms went bust in the first three months of 2011.

Mr Archer added: “Nevertheless, the construction sector clearly faces a challenging environment, which is likely to limit activity over the coming months. In particular, the coalition government's extended pruning of public spending will clearly limit expenditure on public buildings, schools, hospitals and infrastructure.”

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